Knowledge that Transforms

Modern growth theory puts invention on the center stage. Inventions are created by individuals, raising the question of whether we can increase the number of inventors. To answer this question, we study the causal effect of MSc engineering education on invention, using data on U.S. patents’ Finnish inventors and the distance to the nearest technical university as an instrument. We find a positive effect of engineering education on the propensity to patent and a negative OLS bias. Our counterfactual calculation suggests that establishing three new technical universities resulted in a 20% increase in the number of USPTO patents by Finnish inventors.

I examine the role of human and physical capital for the creation of scientific knowledge. I address the endogeneity of human and physical capital with two exogenous shocks: the dismissal of scientists in Nazi Germany and World War II bombings. A 10% shock to human capital reduced output by 0.2 SD in the short run, and the reduction persisted in the long run. A 10% shock to physical capital reduced output by 0.05 SD in the short run, and the reduction did not persist. The dismissal of star scientists caused much larger reductions in output because they are key for attracting other successful scientists.

We study theoretically and empirically whether natural resource windfalls affect political regimes. We show that windfalls have no effect on democracies, while they have heterogeneous political consequences in autocracies. In deeply entrenched autocracies, the effect of windfalls is virtually nil, while in moderately entrenched autocracies, windfalls significantly exacerbate the autocratic nature of the political system. To frame the empirical work, we present a simple model in which political incumbents choose the degree of political contestability and potential challengers decide whether to try to unseat the incumbents. The model uncovers a mechanism for the asymmetric impact of resource windfalls on democracies and autocracies, as well as the the differential impact within autocracies.

We exploit the construction and eventual demise of the colonial railroads in Ghana, and most of the rest of Africa, to study the impact of transportation investments in poor countries. Using new data on railroads and cities spanning over one century, we find that railroads had large effects on the distribution of economic activity during the colonial period and these effects have persisted to date, although railroads collapsed and road networks expanded considerably after independence. Initial transportation investments may thus have large effects in poor countries. As countries develop, increasing returns solidify their spatial distribution, and subsequent investments may have smaller effects.

This paper investigates the impact of the European Union Emissions Trading System (EU ETS) on technological change, exploiting installations level inclusion criteria to estimate the System’s causal impact on firms’ patenting. We find that the EU ETS has increased low-carbon innovation among regulated firms by as much as 10%, while not crowding out patenting for other technologies. We also find evidence that the EU ETS has not affected patenting beyond the set of regulated companies. These results imply that the EU ETS accounts for nearly a 1% increase in European low-carbon patenting compared to a counterfactual scenario.

Report: Committee on the Status of Minority Groups in the Economics Profession (CSMGEP) by Cecilia Rouse and Gary Hoover. Published in volume 106, issue 5, pages 774-87 of American Economic Review, May 2016

The American Economic Journal: Macro economics was established in 2007 along with three other field journals focusing on micro economics, applied economics, and economic policy. As stated in the call for papers and on the jour nal Web site, AEJ: Macroeconomics focuses on studies of aggregate fluctuations and growth, and the role of policy in that context. Such studies often borrow from and interact with research in other fields, such as monetary theory, industrial organization, finance, labor economics, political economy, public finance, international econom ics, and development economics. To the extent that they make a contribution to macroeconom ics, papers in these fields are also welcome. The first order of business before the jour nal went into operation was the recruitment of a Coeditor. I was delighted that Steve Davis (University of Chicago) agreed to join. Steve and I have worked extremely well together. The second order of business was the recruit ment of members of the Board of Editors. This turned out to be easier than I expected, as nearly all the researchers we approached agreed to join. The Board of Editors consists of: Mark A. Aguiar (University of Rochester), Nick Bloom (Stanford University), Pierre Cahuc (Paris Pan theon), John Campbell (Harvard University), Yongsung Chang (University of Rochester), John H. Cochrane (University of Chicago, GSB), William Easterly (New York University), Jordi Gali (CREI), Martin Eichenbaum (Northwestern University), Erik Hurst (University of Chicago, GSB), Charles I. Jones (University of California, Berkeley), Anil Kashyap (University of Chicago, GSB), David Laibson (Harvard University), Jonathan A. Parker (Northwestern University), Maurice Obstfeld (University of California, Berkeley), Thomas Philippon (New York Uni versity), Chris Pissarides (London School of Economics), Valerie A. Ramey (University of California, San Diego), Christina D. Romer (Uni versity of California, Berkeley), David Romer (University of California, Berkeley), Thomas J. Sargent (New York University), Mark W. Watson (Princeton University), Ivan Werning Report of the Editor